A secret court, sitting in central London, rejected the Home Office's claim that G, a 35-year-old Algerian released under house arrest in April, had breached the terms of his bail.
Mr Clarke alleged that G, who is accused of having links with al-Qai'da, had allowed two men to make an unauthorised visit to his council flat in London. Under the strict conditions of his bail, G is not allowed any unauthorised contact with the outside world.
But after a secret hearing in which government lawyers presented evidence of the alleged visit, the Special Immigration Appeal Commission ruled Mr Clarke had failed to prove his case. Mr Justice Collins, the presiding judge, said: "We are not satisfied to the necessary standard that the Secretary of State has proved a breach and, in the circumstances, we will take no action towards the revocation of bail."
The judge also made it clear that there was no suggestion that G had failed to comply with the conditions of his bail since he was released from Belmarsh last year when doctors had raised grave concerns about his mental health.
G, accompanied by his wife, sat impassively in court yesterday as the judge ruled in his favour. His barrister, Ben Emmerson QC, said his client was under intense mental strain because of his house arrest and said that G and his wife regarded the ruling with "very substantial relief".
The case represents a further setback for the Government's anti-terror policy. In December last year, the House of Lords ruled that indefinite detention without trial breached the European Convention on Human Rights, in turn prompting ministers to promise to change the law by introducing house arrest and control orders for foreign and national terror suspects.
Since then, three more of the suspects have been granted bail and a fourth man, D, was released from Woodhill prison unconditionally last week.
G's solicitor, Gareth Peirce, said yesterday: "If they can make a mistake once, they can make a mistake again. It is like the sword of Damocles hanging over their heads."
Ms Peirce said G was now left in a "nightmare", claiming the attempt to revoke his bail had been made on secret evidence, which "must be" wrong.
The secretive nature of the hearing means that there is no opportunity to contest the evidence. She said: "Despite all the miscarriages of justice over the past 15, 16 or 18 years, you were able to prove that the evidence was wrong. Here there is not that possibility whatsoever. He [G] is left in a nightmare."
After the ruling, Mr Clarke said: "I made an application to the Special Immigration Appeals Commission (Siac) in the case of G because I believed him to be in serious breach of his bail conditions ... I am disappointed with the decision by the court to allow G to remain on bail. Every step will be taken to continue to monitor G's bail conditions closely so that any further breach can be dealt with swiftly and appropriately to ensure public safety."
G was arrested shortly after the 11 September 2001 terror attacks, under the terms of the hastily drafted Anti-terrorism Crime and Security Act 2001, but has never been informed of the full evidence against him.
In 1991 he was arrested by the Algerian security services and tortured and in December of that year, fearing that he would be arrested again, left Algeria for Saudi Arabia.
He later travelled to Pakistan from where he made a number of visits to Afghanistan. But he claims it became difficult to stay in Pakistan because he was an illegal immigrant and, with a civil war raging in Afghanistan, it was unsafe to retreat there. In August 1995 he arrived in Britain and claimed asylum.Reuse content